Flex your money muscles: Step 1

Blayne Haggart needs a plan. The 40-year-old academic in St. Catharines, Ont. wants to get serious about investing for retirement. Over the last decade, Haggart and his wife Natasha have taken turns furthering their education, each completing a doctorate while the other worked. Along the way these former government workers managed to put aside a tidy sum in high-interest savings accounts in addition to the money they’ve accumulated in defined benefit pension plans. Now it’s time to get that cash working. “We’re very conservative investors,” says Haggart, “and for a while we were postponing any long-term investment decisions because we weren’t quite sure where we’d be in the future.” Just like an athlete preparing for a big event, the Haggarts need to get their game faces on. But before they start investing, they need to define their goals. Training for a marathon is different than training for a sprint, and weight training can add bulk or simply tone your muscles. You wouldn’t start an exercise regimen unless you knew what kind of results you wanted. It’s no different with personal finance. A portfolio is just a tool, and choosing the right investments should come only after you’ve identified specific goals and developed a plan for reaching them. For the Haggarts, this means determining how much annual income they want in retirement, their time frame to achieve that goal, how much they’ll need to budget for savings, and how much risk they’ll need to take. Then they should get that in writing. “Always start with a written financial plan,” says Jamie Golombek, CIBC’s managing director of tax and estate planning. “Everything else comes after that because if you have no plan you have absolutely no way of knowing where you’re going.” Some people can develop a financial plan on their own, says Golombek. That’s especially true if your plan is simple: if you’re young and unsure about your future career, for example, you don’t need a comprehensive retirement plan. But those with more complicated situations and little financial expertise should seriously consider working with a financial adviser on an ongoing basis, or check in with a fee-for-service planner who will look at the big picture and make recommendations. Most important, remember that planning—like staying in shape—is a process, not a one-time event. “Every year I revisit my financial plan and ask myself, ‘Am I on track for meeting my goal?’” Golombek says. All financial plans are based on assumptions, many of which will turn out to be inaccurate, so they need to be adjusted from time to time. Changes in your personal life can also throw a wrench into your plan: a job loss, marriage or separation, the birth of a child, or the ill health of a family member, to name a few. No plan can anticipate all of these, so you’ll need to make some course corrections along the way.